“Germany Fund” for energy infrastructure falls short – business initiative

The government’s new “Germany Fund” to mobilise private capital for investments in energy, raw materials, and new technologies is “only a first step” towards meeting the country’s investment needs, said Sabine Nallinger, chairwoman of the CEO Alliance for Climate and Economy.

“In order for the Germany Fund to become a key lever for transformation and greater competitiveness, it needs to be better equipped, implemented at a faster pace and consistently focused on transformation and decarbonisation,” she said.

The government launched the “Germany Fund" jointly with state-owned development bank KfW, following a promise in the coalition treaty of chancellor Friedrich Merz’s conservatives and the Social Democrats. It is not a traditional investment fund. Instead, it is an initiative composed of several different instruments, which will use guarantees, loans and equity stakes to lower the risk of private investments. The state is providing public funds and guarantees totalling around 30 billion euros to mobilise private capital, to enable total investments of around 130 billion euros.

The money is intended, for example, for new technologies and production facilities, the expansion of renewable energies, heating networks and electricity grids, but also the extraction of raw materials and the financing of innovative technologies in the fields of deep tech, AI and biotech, alongside the development of solutions to strengthen defence capabilities.

The investment push by KfW and the government must be managed well to ensure that it has the desired effects, said Marcel Fratzscher, president of the German Institute for Economic Research (DIW Berlin). He warned that companies could use it to implement projects that they would have pursued anyway, while investors could simply pass on risks to the state. Fratzscher added that additional larger reforms of taxes, regulations and social security were necessary to ensure the fund's success.

Utility association VKU welcomed the launch of the geothermal energy instrument, which is part of the fund. KfW will provide loans for deep geothermal drilling and the government protection against project failure. “This programme will significantly advance the local heating transition,” said VKU managing director Ingbert Liebing, who warned that many of the fund's instruments still required full development, with speed being crucial.

Germany faces massive investment needs to transition its economy and society to climate neutrality by 2045. A challenging economic situation has led to shrinking investment budgets and shifting priorities among large corporations in Germany in 2024, significantly reducing the share of investments made into climate and sustainability, KfW said earlier this week.